New Issues and IPOs Explained

A New Issue or an IPO (Initial Public Offering) is a method of bringing a company to the market to raise money in return for a transfer of control to shareholders.

Purchase shares and bonds at issue

Shares can be attractively priced or offered at a discount.

All new issues are exempt from stamp duty and are often commission free.

High demand may result in the share price being pushed upwards.

What are New Issues and IPOs?

A New Issue or an IPO is simply the first sale of shares in a company, usually to institutions like private equity houses, asset managers and pension funds.There are many reasons why companies offer shares to the public including to raise new capital, widen their shareholder base, gain a stock market quote for liquidity, use 'paper' to make acquisitions or simply to raise their public profile.

However, it is not always possible for retail investors to participate in New Issues or IPOs as the EU Prospectus Directive dictates that in order to offer shares to the public, the company must issue a prospectus approved by the Financial Conduct Authority (FCA). This can be costly and as a result some companies choose not to issue a prospectus and offer shares to professional investors and institutions only.

Email Alert Service

We offer an e-mail alert service which endeavors to notify you of any upcoming New Issues or IPOs which are available to retail investors through Redmayne Bentley.

There is no obligation to purchase by signing up to our e-mail alerts, you will simply receive information whenever a new issue or IPO becomes available. All new issues and IPOs are offered on an execution-only basis (ie. without advice).

There is no obligation to purchase by signing up to our e-mail alerts, you will simply receive information whenever a new issue or IPO becomes available. All new issues and IPOs are offered on an execution-only basis (ie. without advice).

Benefits

There's no liability for Stamp Duty when purchasing bonds at issue and shares in an IPO.

Often there is no commission payable on the purchase for most new bond issues and IPOs.

IPOs can be priced under the anticipated market value as judged by the issuer and can offer a good return over a short period, though it is also possible the shares may fall in value when they become tradable on the stock market.

Bonds are ISA and SIPP eligible offering the opportunity to receive Gross Interest with no further Tax Liability. Tax treatment depends on the specific circumstances of each individual and may be subject to change in the future.

Following issue, retail bonds become tradable on the stock market just like ordinary shares, and the Order book for Retail Bonds (ORB) offers transparency for private investors.

High demand may lead to new bond issues being oversubscribed which in turn is likely to see good demand in the market once the bonds are trading freely, resulting in the bond price being pushed upwards.

Many of the recent bond issues pay higher interest rates than the high-street banks and building societies; however, they still remain exposed to interest rate and inflation risk in addition to other potential risks which will be outlined in the issuer documents

Risks/Considerations

Investments can fall in value and you may lose some or all of the amount you have invested. With retail bonds the promised payment of income and return of capital could be in jeopardy in the event that the parent company has problems meeting its financial obligations.

Retail bonds have less liquidity when trading if the company raises only a low amount of capital.

Retail bonds are expected be redeemed at the end of their term at par, but over the life of a bond the market price will fluctuate, moving closer to par as the maturity day approaches.

In the case of bonds; if these are not index-linked, if the rate of inflation rises the value of the money you get back in real terms will be lower.

Most new issues and IPOs have a short window with an application period of two weeks or less and can be closed early, scaled back or withdrawn depending on demand.

If the interest rate rises, shares and bonds can begin to look less attractive often resulting in holders selling, resulting in a fall in price.

When purchasing bonds and shares there is no protection from the Financial Services Compensation Scheme.

New issues do not always come to market at a premium.

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